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Vol. 22, No. 2 Week of January 08, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

IGU releases draft of Pentex MOU, sets terms of purchase from AIDEA

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The Interior Gas Utility, one of the two current gas utilities in Fairbanks, has released a draft memorandum of understanding setting out the terms under which it would purchase Pentex Alaska Natural Gas Co. from the Alaska Industrial Development and Export Authority. With Pentex owning Fairbanks Natural Gas Co., the other Fairbanks utility, the purchase would consolidate the two utilities into a single entity. Pentex also owns the Titan liquefied natural gas facility near Point MacKenzie on Cook Inlet and the trucking operation for transporting LNG to Fairbanks. FNG currently supplies gas to the central part of Fairbanks. IGU has started constructing a gas distribution network in Fairbanks in anticipation of an expanded gas supply for the city, in conjunction with the Interior Energy Project, an AIDEA project to facilitate a growing and cost-competitive Fairbanks gas supply.

Purchased in 2015

In 2015, in conjunction with the Interior Energy Project, AIDEA purchased Pentex for $54 million. The agency characterized the purchase as a short-term, strategic investment, to help move the Interior Energy Project forward. The plan was to ultimately spin off FNG to form a consolidated utility with IGU, thus enabling economies of scale in Fairbanks gas supplies and the development of a fully integrated gas distribution network in the city. The draft MOU that IGU has now issued is not binding but sets out the conditions under which the utility consolidation would take place. The anticipated sale price is approximately $58.2 million, a figure that includes AIDEA’s anticipated return on its original investment in Pentex. AIDEA and IGU want to finalize the sale agreement by March 31, the MOU says. The envisaged sale includes a gravel pad on the North Slope that was constructed in an earlier phase of the Interior Energy Project as a site for a potential North Slope LNG facility.

AIDEA’s Interior Energy Project team has been working to tie down the various supply chain components for an enlarged gas supply for Fairbanks. Those components consist of an appropriate gas supply agreement with a Cook Inlet gas producer; an expansion to the existing Titan LNG plant; transportation of LNG by road, or possibly by rail, to Fairbanks; an expansion to LNG storage and gas distribution facilities in Fairbanks; and the facilitation of the conversion of homes and businesses in Fairbanks to the use of gas for heating.

Plan for expansion

The program for an integrated Fairbanks gas utility, following the purchase of Pentex by IGU, envisages a three-phase expansion of the Titan facility to an eventual liquefaction capacity of 100,000 gallons per day; expanded LNG transportation arrangements; LNG storage and re-gasification facilities in Fairbanks and North Pole; and a phased enlargement of the Fairbanks gas distribution infrastructure. Financing would involve a combination of a state capital appropriation, AIDEA Sustainable Energy Transmission and Supply, or SETS, loans, and state bonds.

According to the MOU, closure of the sale of Pentex to IGU will require a number of conditions, including the establishment of a long-term gas supply contract for the project, the adoption by AIDEA and IGU of a plan of development for the Titan plant, and the development of a comprehensive plan for the integration of FNG and IGU in Fairbanks.

- ALAN BAILEY



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